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The purpose of this essay is to explain the main features of the political economy of Friedrich List and to show their relevance for our understanding of political economy in the late twentieth century.' It will be contended that List, although much neglected in the English-speaking world, is in fact a political economist of major importance.2 His writings represent a divergent approach to the classical, neoclassical and Marxist traditions by attempting to set out a genuinely political economy. In doing so, he enables us to understand better the differences between the laissez-faire version of capitalism best exemplified by the UK and the USA and the various forms of `social capitalism' to be found in western Europe and the Pacific Rim.
A key assumption of economics in the neoclassical tradition is that of homo oeconomicus, the rational utility maximiser. Despite the attempts of some commentators to state the contrary, this is the principal assumption made by Adam Smith in the Wealth of Nations.' Smith's account of economic behaviour in capitalism is not seriously challenged by Marx. It is no exaggeration to say that List's political economy makes a break with this tradition. List did not deny that the rational aims of economic behaviour were growth and prosperity, both for society and the individual, but he did deny that human behaviour could be sufficiently explained as utility maximisation. Contemporary writers in the neoclassical tradition have got into difficulties on this point, either assuming that the utility model only works in the economic context or seeking to buttress it with a richer account in terms of the other-regarding virtues and habitual, trustworthy behaviour.4 The first solution suffers from psychological implausibility, the second is incoherent. One cannot be a self-interested utility maximiser and practise other-regarding virtues; only if utility-maximisation were heavily circumscribed by social considerations would this modification make sense. But such a change would lead to the wholesale revision of the moral-psychological assumptions underlying neoclassical economics, not a mere tinkering at the edges.
National and cosmopolitical political economy
List opens his criticisms of Smith by asserting that the geopolitical context which Smith assumes for his economic model is unrealistic. Smith assumes a cosmopolitical world economy where all nations are at peace and trading freely with each other.5 The...